Goldman Sachs, and the evolution of sustainable investing

September 16, 2015

Will socially-responsible investing (SRI) ever grow up?

With roots in religious communities and the anti-war movement of the 1960s, SRI funds have long shunned investments in tobacco, alcohol, guns and (low-carbon) nuclear power. Much as I admire the pioneers of the field–folks like Amy Domini and Wayne Silby–this never made sense to me, particularly after I attended the SRI industry’s annual confab in the Rockies and found that where ample quantities of wine and beer were poured.

Nor, for the most part, did the socially responsible investment firms have the resources that would enable them to do the deep research needed to identify those companies that are committed to socially and environmentally sound practices, and those who are not.

That may–may–be changing.

Hugh Lawson of Goldman Sachs

I say that because several big Wall Street banks–Goldman Sachs, Morgan Stanley and Bank of America/Merrill Lynch–are becoming increasingly interested in SRI which, interestingly, has been rebranded “sustainable, responsible and impact” investing by US SIF, an industry group. Today in the Guardian, I wrote about Goldman’s new head of environmental, social and governance (ESG), Hugh Lawson. Here’s how the story begins:

Wall Street’s big banks are becoming increasingly interested in sustainable investing. The most recent convert is Goldman Sachs: in June, it named Hugh Lawson, a partner and managing director, as its global head of environmental, social and governance (ESG) investing. This move was part of a larger trend: a month later, Goldman acquired Imprint Capital, a boutique investment firm that seeks measurable social and environmental impacts on top of financial returns.

Those clients include public pension funds, insurance companies, universities and foundations that want their investments to take social and environmental issues into account. Given the size and scope of these large institutional investors, it’s not surprising that some of Wall Street’s major players are getting involved: Goldman and its rivals, including Morgan Stanley and Bank of America/Merrill Lynch, are following the money, as they always do.

In addition to attracting big clients, the sustainable investing initiatives being led by Lawson and others – including Audrey Choi, who leads Morgan Stanley’s global sustainable finance group, and Andy Sieg, head of global wealth and retirement solutions for Merrill Lynch – have the potential to steer more capital into investments that promote corporate sustainability. “Clients are telling us that they want their portfolios to reflect their values and help improve the world they live in,” Sieg has said.

When we met a couple of weeks ago, Lawson told me that he became interested in sustainable investing while serving as a trustee of the investment committee at the Rockefeller Brothers Fund, which divested from fossil fuels last year. Lawson analyzed the relationship between divestment and financial returns, and came to believe that eliminating fossil fuel holdings from the fund’s $857m portfolio would not necessarily limit returns or increase risk.

What’s promising about about all this is that Goldman and its rivals intend to bring more rigor, sophistication and scale to the field of sustainable investing. As an example, Lawson told me that investment advisors could construct a portfolio that overweights companies that are carbon-efficient and underweights those that are high emitters. This could reward companies with the most favorable social and environmental profiles; over time, it might even generate above-market returns. In any event, bringing more resources and brainpower to sustainable investing is almost surely going to be a good thing.

Comments

Praising for their Social Responsibility Monsanto, McDonalds, geoengineering, intensive agriculture and now Goldman Sachs, that is a tough proposition from your side. Pretty regular mindboggling provocations. It needs guts. How is the wallet ?

“Goldman and its rivals intend to bring more rigor, sophistication and scale to the field of sustainable investing.”
What rigor and sophistication and scale?
You say:”overweights companies that are carbon-efficient and underweights those that are high emitters.”
This kind of strategies have been around a long time. Even performance studies on such strategies are available. There is no new rigor or sophistication or scale in this.
GS will bring the single minded and merciless pursuit of money to SRI and that’s not what SRI is all about. Poor argument!